Around £4.2bn of suspicious money is believed to be laundered through the London property market.
The report produced by the London-based anti-corruption organization Transparency International claims that the purchase of luxury properties by corrupt individuals is also exacerbating the housing crisis by driving up prices in the rest of the city.
High property prices in the capital are also believed to facilitate large-scale money laundering operations by allowing greater sums to be transferred from overseas jurisdictions.
While there are multiple causes of London’s housing crisis, Transparency International claims to have found evidence that overseas corruption and the purchase of luxury London properties is playing a ‘significant contributory role’.
The findings are based on an analysis of Land Registry data for 14 landmark luxury developments, consisting of 2,066 future homes.
The report published this month follows a highly publicized announcement in December by London’s mayor, Sadiq Khan, of an investigation into the role played by foreign property buyers in London’s housing crisis.
Transparency International claims up to 80 per cent of properties in luxury developments are bought by overseas investors. Around 40 per cent are sold to individuals from high corruption risk jurisdictions. Much of the remainder are bought by ‘anonymous’ companies registered in the UK’s Overseas Territories and Crown Dependencies.
London is an obvious destination for much of this money. Luxurious properties in the capital are in very high demand internationally. London prime real estate is renowned around the world as a symbol of wealth and respectability. The UK is also known as a safe-haven for corrupt individuals worldwide due to its political stability and robust legal system.
Money launderers can easily create offshore companies to hold wealth and assets and provide secrecy for the beneficial owners.
Transparency International claims that over 75% of the UK properties under criminal investigation for grand corruption use offshore corporate secrecy. For all criminal investigations analysed, every property that made use of a foreign company to hold property used a company from an offshore secrecy jurisdiction, rather than a major economy.
The organisation is now calling on the government to implement a public beneficial ownership register of overseas companies that own UK land titles. The creation of such a register was originally announced after the May 2016 Global Anti-Corruption Summit.
Poor International Enforcement
Transparancy International’s report comes following the Public Accounts Committee’s admission that the UK performs poorly in tackling money laundering.
In 2013 only 26p out of every £100 of identified criminal gains was confiscated. While the estimated loss to the economy through fraud last year stood at £52bn, enforcement agencies collected just £133m. According to the National Audit Office recovery of the money cost taxpayers an estimated £102m in administration costs.
The picture is similar internationally. In 2012 the UN Office on Drugs and Crime estimated that typical law enforcement detection levels for money laundering stand at around one per cent.
Reporting of suspicious activity in the property sector is particularly poor. Between October 2013 and September 2014, estate agents contributed to only 0.05% of all Suspicious Activity Reports (SARs).
As of July 2014, across the England and Wales, at least £122bn worth of property was held by companies registered in secrecy jurisdictions. Out of 91,248 foreign company-owned properties in England and Wales, nearly two thirds are held via the British Virgin Islands and Channel Island structures.
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